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South Asia Investor Review is focused on reporting, analyzing and discussing the economy and the financial markets of countries in South Asia, including Pakistan, Bangladesh and Sri Lanka. For investors looking to invest in emerging markets beyond BRIC countries (Brazil, Russia, India and China), this blog is designed to help international investors looking to learn about investing in South Asia with focus on Pakistan. Riaz has another blog called Haq's Musings at http://www.riazhaq.com

Russia's Putin Vs American Exceptionalism

"My working and personal relationship with President Obama is marked by growing trust. I appreciate this. I carefully studied his address to the nation on Tuesday. And I would rather disagree with a case he made on American exceptionalism, stating that the United States’ policy is “what makes America different. It’s what makes us exceptional.” It is extremely dangerous to encourage people to see themselves as exceptional, whatever the motivation. There are big countries and small countries, rich and poor, those with long democratic traditions and those still finding their way to democracy. Their policies differ, too. We are all different,but when we ask for the Lord’s blessings, we must not forget that God created us equal." Russian President Vladimir Putin's Op Ed in New York Times

Clearly, Mr. Putin does not like the fact that the United States considers itself exceptional. But what does "exceptional" mean?

To me, "exceptional" is just another word for "special". I don't know of any nation that doesn't think they are special in some way and they use it to whip up their own brand of nationalism.

In the case of United States, however, there are genuine reasons based on rational data and facts that establish US as "special" in multiple dimensions. The US is a multi-dimensional hyper-power the likes of which the world has not seen.

The current world order and its institutional framework were architected by post-WW II American leaders. Establishment of international institutions like the United Nations and its multiple agencies, the World Bank, IMF, GATT and WTO was spearheaded by Americans.

Not only is the US the biggest military power many times larger than number two Russia, the US dollar is the world's unchallenged currency which is used for the bulk of international trade and as reserve currency by central banks around the globe. The US is the world's largest economy and the biggest trading partner of most of the countries of the world. The US also boasts the world's top entrepreneurs, most innovative companies and bulk of the top universities with the lion's share of Nobel prizes. The US leadership in wide range of technologies and industries is unquestionable. And the US lead is growing, not shrinking with new developments.

In spite of its great technological advances, the US still retains many vestiges of its Wild West. With its powerful gun-rights advocates in many western, mid-western and southern states, the US is still a gun-slinging frontier society in many ways which makes it jealously guard its exceptional status in the world.

The US seeks to avoid the fate of other great empires of the past which were brought down by barbarians and desert tribesmen over the centuries.

Here's a excerpt of a piece by NY Times Nobel Laureate economist-columnist on Ibn Khaldun's lessons for established powers: "Desert tribesmen, he argued, always have more courage and social cohesion than settled, civilized folk, so every once in a while they will sweep in and conquer lands whose rulers have become corrupt and complacent. They create a new dynasty — and, over time, become corrupt and complacent themselves, ready to be overrun by a new set of barbarians...I don’t think it’s much of a stretch to apply this story to Microsoft, a company that did so well with its operating-system monopoly that it lost focus, while Apple — still wandering in the wilderness after all those years — was alert to new opportunities. And so the barbarians swept in from the desert".

US intelligence analyst and author George Friedman in his book "The Next 100 Years" describes the United States as "young and barbaric" with the barbarian instincts to fight off most threats, including those from the rag-tag bands of tribesmen and barbarians who have toppled great empires of the past like the Roman empire, the Byzantine empire, the Persian empires, the Umayyid empire, the Abbasid empire and the Soviet empire.

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Senator John McCain accused Vladimir Putin on Thursday of allying himself with tyrants and ruling through violence and repression, in a retort to a New York Times editorial by the Russian President earlier this month.

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"(Putin) is not enhancing Russia's global reputation. He is destroying it. He has made her a friend to tyrants and an enemy to the oppressed, and untrusted by nations that seek to build a safer, more peaceful and prosperous world," wrote the senior senator from Arizona, who is also a leading Republican voice on military affairs.

Pravda.ru considers itself a successor to the Soviet-era Communist Party newspaper but is not connected to it. Like the newspaper, which still exists, it has a limited readership.

U.S.-Russia ties are at one of their lowest points since the Cold War. Tensions over the Syrian conflict have been compounded by differences over human rights and the fate of fugitive ex-U.S. intelligence contractor Edward Snowden, to whom Russia awarded asylum.

Putin's op-ed article said a military strike against Assad could escalate a conflict that has already killed more than 100,000 people.

Russia, a longtime ally of Assad, sees the rebels as the chief instigator of civil war in Syria. It has blocked three U.N. resolutions aimed at pressuring Assad to end violence, but is involved in talks on a plan enabling the Syrian leader to give up his chemical weapons to avoid possible U.S. military strikes.

Putin, speaking to a gathering of the Valdai Club of journalists, social scientists and public figures, said he regretted that MacCain had not taken up an invitation to the meeting. The Senator's positions, he said, were largely a product of ignorance.

"It all speaks of the fact that MacCain has a deficit of information about Russia," Putin said. "The more we speak to each other directly, the better it will be."

KREMLIN CRITIC

McCain, who is known in Russia as one of the Kremlin's harshest critics, warned Putin in 2011 that "the Arab Spring is coming to a neighborhood near you" when fraud allegations triggered mass street protests after a parliamentary election.

The senator has been critical of Putin's domestic policies, including Moscow's response to the protest movement that has all but died out after Russia's parliament passed laws that critics say are intended to clamp down on dissent.

"To perpetuate their power they foster rampant corruption in your courts and your economy and terrorize and even assassinate journalists who try to expose their corruption."

After Russia gave asylum to Snowden, who is wanted by U.S. authorities, McCain said Washington should complete missile-defense programs in Europe and expand NATO to include Russian neighbor Georgia - both endeavors that are anathema to Moscow.

McCain made reference to anti-corruption lawyer Sergei Magnitsky, who died in pre-trial detention after accusing officials of a $230-million fraud, and mentioned recently passed laws criticized in the West for being anti-gay.

He also said that the members of the protest punk band Pussy Riot, two of whom are serving time behind bars for a protest against Putin in a Moscow cathedral, had been convicted on political grounds.

"They write laws to codify bigotry against people whose sexual orientation they condemn. They throw the members of a punk rock band in jail for the crime of being provocative and vulgar and for having the audacity to protest President Putin's rule," he said.

predicting the decline of the United States has always been risky business. In the 1970s and late 1980s, expectations of waning power were followed by periods of geopolitical resurgence.

There’s every reason to believe that cycle is recurring today. Despite gridlock in Washington, America is recovering from the financial crisis and combining enduring strengths with new sources of influence, including energy. Meanwhile, emerging powers are running into troubles of their own. Taken together, these developments are ushering in a new era of American strategic advantage.

Emerging economies were the darlings of the past decade, growing at an average of roughly 7 percent annually between 2003 and 2012. By some calculations, China was poised to surpass the United States in GDP by 2016.

Today, the picture couldn’t look more different. Brazil’s growth rate has fallen from more than 7 percent in 2010 to just under 1 percent. Likewise, Indian growth tumbled to about 3 percent in 2012, down from double digits as recently as two years earlier. Perhaps most pronounced, China’s government is revising down its official growth targets. Analysts are no longer asking whether there will be a Chinese economic slowdown but rather how hard the landing will be.

Morgan Stanley has identified five particularly fragile emerging-market currencies: Brazil’s real, India’s rupee, Indonesia’s rupiah, South Africa’s rand and Turkey’s lira. Those countries are vulnerable to high inflation, large deficits, low growth and a downturn in China. And they may soon face problems in international financing.

The political systems in emerging powers are fraying, too. There have been huge protests in Brazil over wasteful government spending and inadequate social programs. Russia looks more authoritarian by the day. And the Chinese Communist Party is stepping up efforts to crack down on journalists, academics and bloggers in what seems to be an attempt to control the discontent that accompanies slower growth and painful economic reforms.

These “rising powers” are hardly faring better collectively. The international institutions they established — BRICS, the Shanghai Cooperation Organization and IBSA — continue to disappoint.

At the same time, the United States is experiencing a turnaround of fortunes. The unemployment rate has fallen to just over 7 percent from an October 2009 peak of 10 percent. By contrast, euro-zone unemployment remains stuck at around 12 percent.--------------The United States also remains the linchpin of the international community. Through hard-nosed diplomacy, economic pressure and the specter of military action, Washington has retained its ability to marshal effective multinational coalitions, bringing down Libya’s Moammar Gaddafi, getting weapons inspectors on the ground in Syria and embarking on serious negotiations to curb Iran’s nuclear weapons program. You can quibble with process and style, but it’s hard to argue that any of these would have happened without the United States.

More broadly, and most important, the United States is blessed with a superior combination of sound fundamentals in demography, geography, higher education and innovation. That ensures it has the people, ideas and security to thrive at home and on the world stage. There’s a reason elites around the world remain eager to send their fortunes, and often their families, to the United States.

In July 1944, delegates from 44 nations met at Bretton Woods, New Hampshire – the United Nations Monetary and Financial Conference – and agreed to “peg” their currencies to the U.S. dollar, the only currency strong enough to meet the rising demands for international currency transactions.

Member nations were required to establish a parity of their national currencies in terms of the US dollar, the "peg", and to maintain exchange rates within plus or minus one percent of parity, the "band."

What made the dollar so attractive to use as an international currency was each US dollar was based on 1/35th of an ounce of gold, and the gold was to held in the US Treasury. The value of gold being fixed by law at 35 US dollars an ounce made the value of each dollar very stable.

The US dollar, at the time, was considered better then gold for many reasons:

The strength of the U.S. economyThe fixed relationship of the dollar to gold at $35 an ounceThe commitment of the U.S. government to convert dollars into gold at that priceThe dollar earned interestThe dollar was more flexible than goldThere’s a lesson not learned that reverberates throughout monetary history; when government, any government, comes under financial pressure they cannot resist printing money and debasing their currency to pay for debts.

Let's fast forward a few decades…

The Vietnam War was going to cost the US $500 Billion. The stark reality was the US simply could not print enough money to cover its war costs, it’s gold reserve had only $30 billion, most of its reserve was already backing existing US dollars, and the government refused to raise taxes.

In the 1960s President Lyndon B. Johnson's administration declared war on poverty and put in place its Great Society programs:

Head StartJob CorpsFood stampsMedicaidFunded educationJob trainingDirect food assistanceDirect medical assistanceMore than four million new recipients signed up for welfare.

Legitimizing of double standards is the West's idea of the "new liberal imperialism" in post-modern world as proposed by British diplomat Robert cooper....It's ok to play by different rules in developing world than at home.

“WHAT has long been predicted has now become a reality: China is leading the world in innovation.” So declares a press release promoting a new report by Thomson Reuters, a research firm, called “China’s IQ (Innovation Quotient)”. The report highlights the astonishing increase in patents filed in the country. In 2010 Chinese firms filed roughly the same number of applications for “invention” patents (the most rigorous sort) as their counterparts in Japan and America. By 2013 the Chinese figure had nearly doubled even as the rates in the other two countries held steady (see chart).

Some scepticism is in order, however. For one thing, the explosion of patent filings is not the result of local researchers suddenly coming up with twice as many ingenious inventions: it is a response to a government order. As the report acknowledges, “the growth in output is driven by the 12th Five-Year Plan and the associated Chinese National Patent Development Strategy”. Bureaucrats have decreed that local firms will apply for 2m patents by 2015. Thanks to various subsidies and incentives, China looks set to hit that target.

The quality of many of these patents is in doubt. Of the desired 2m filings, many will be for “utility” or “design” patents, which are less substantial than “invention” patents. Critics suggest that even in the latter category, many Chinese filings fall short of global standards.

That is why it is useful to see what percentage of Chinese invention patents are also filed at foreign patent offices, which tend to be more rigorous and transparent. (When a firm goes to the trouble of filing for patents globally, it is usually a sign that it believes its invention to be genuinely valuable.) Only about 5% of patents filed by local firms in China last year were also filed abroad, whereas over a third of patents originally filed by local firms in Japan were also filed elsewhere.

Almost all of the growth in China’s invention patents over the past three years has come from local firms, not from the Chinese divisions of multinationals. That suggests that the bureaucrats’ orders are responsible, rather than the emergence of a local ecosystem of innovation as seen in Silicon Valley. Intellectual-property rights do matter, but merely churning out patents does little to advance innovation.

The violence is also celebrated in popular culture, for example, in Bollywood and Hollywood, as a mechanism for legitimate justice in the wake of a failure of the law. Routinised to the point of being banal, such violence is masked by the rhetoric of Indian and American exceptionalism, in which violence is defined simply as an unfortunate aspect of an otherwise gloriously multifaceted society.The obscenely easy access to guns in America and the weak-kneed position taken by most politicians across the spectrum on the matter are central to the barely-masked celebration of violence in American culture. The only issue that is arguably more of a minefield for an American politician, including so-called progressives like Democratic Senator Elizabeth Warren, is questioning American policy toward Israel. In the wake of every such shooting, the National Rifle Association, as well as their lobbyists and political mouthpieces, shamefully trot out the usual excuse of mental illness as the cause of gun violence.In another shooting tragedy on a #US campus, lessons for #India. #UCLAShooting http://scroll.in/article/809270/in-another-shooting-tragedy-on-a-us-campus-lessons-for-india … via @scroll_in

In another shooting tragedy on a #US campus, lessons for #India. #UCLAShooting http://scroll.in/article/809270/in-another-shooting-tragedy-on-a-us-campus-lessons-for-india … via @scroll_in

Indians are used to telling themselves that India and the US are “the world’s two largest democracies”, as the cliché goes. The two societies, however, resemble each other most closely in extremely unsavory ways. First, both societies are deeply marked by violence.

Scratch the surface of Indian life, Urvashi Butalia has argued, and the “façade of peacefulness very quickly disappears”.

The violence is also celebrated in popular culture, for example, in Bollywood and Hollywood, as a mechanism for legitimate justice in the wake of a failure of the law. Routinised to the point of being banal, such violence is masked by the rhetoric of Indian and American exceptionalism, in which violence is defined simply as an unfortunate aspect of an otherwise gloriously multifaceted society.

Germany calls for global payments system free of USForeign minister seeks European autonomy on issues like Iran

https://www.ft.com/content/23ca2986-a569-11e8-8ecf-a7ae1beff35b

German foreign minister Heiko MaasGermany’s foreign minister has called for the creation of a new payments system independent of the US as a means of rescuing the nuclear deal between Iran and the west that Donald Trump withdrew from in May.

Writing in the German daily Handelsblatt, Heiko Maas said Europe should not allow the US to act “over our heads and at our expense”.

“For that reason it’s essential that we strengthen European autonomy by establishing payment channels that are independent of the US, creating a European Monetary Fund and building up an independent Swift system,” he wrote.

Mr Maas’s intervention was the “strongest call yet for EU financial and monetary autonomy vis-à-vis US,” said Thorsten Benner, director of the Global Public Policy Institute, a Berlin-based think-tank.

The foreign minister’s article highlights the depth of the dilemma facing European politicians as they struggle to keep the Iran deal alive while coping with the fallout of US sanctions imposed by Mr Trump against companies doing business with Tehran.

The EU has committed itself to the agreement and has vowed to protect European businesses from punitive measures adopted by Washington. But that has failed to convince EU companies, who are more interested in maintaining their access to the lucrative US market than in the more modest opportunities presented by Iran.

Last month Washington rebuffed a high-level European plea to exempt crucial industries from sanctions. Mike Pompeo, US secretary of state, and Steven Mnuchin, Treasury secretary, formally rejected an appeal for carve-outs in finance, energy and healthcare made by ministers from Germany, France, the UK and the EU.

[Europe must] form a counterweight when the US crosses red lines

Heiko Maas, German foreign ministerOn Monday, Total, France’s largest energy company, announced it was pulling out of a big Iranian gas project, after admitting it might be affected by threatened US measures against Iran’s oil and gas industry.

Swift, a Belgium-based global payment system that facilitates many of the world’s cross-border transactions, is also affected. Unless it wins an exemption from sanctions, it will be required by the US to cut off targeted Iranian banks from its network by early November or face possible countermeasures against both its board members and the financial institutions that employ them.

These could include asset freezes and US travel bans for the individuals, and restrictions on banks’ ability to do business in the US.

Mr Maas’s words Handelsblatt come with relations between Germany and the US in their worst state for decades. Mr Trump has chastised Berlin over its large trade surplus, its relatively low military spending and its support for Nord Stream 2, a new gas pipeline that will bring Russian gas directly to Germany.

Meanwhile, Berlin has looked on in dismay as Mr Trump has withdrawn the US from the Iran deal and the Paris climate treaty, imposed import tariffs on EU steel and aluminium and appeared to question America’s commitment to Nato.

Mr Maas said it was vital for Europe to stick with the Iran deal. “Every day the agreement continues to exist is better than the highly explosive crisis that otherwise threatens the Middle East,” he said.

He also called for the creation of a “balanced partnership” with the US in which the Europeans filled the gaps left where the US withdrew from the world. Europe must, he said, “form a counterweight when the US crosses red lines”.

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I am the Founder and President of PakAlumni Worldwide, a global social network for Pakistanis, South Asians and their friends. I also served as Chairman of the NEDians Convention 2007. In addition to being a South Asia watcher, an investor, business consultant and avid follower of the world financial markets, I have more than 25 years experience in the hi-tech industry. I have been on the faculties of Rutgers University and NED Engineering University and cofounded two high-tech startups, Cautella, Inc. and DynArray Corp and managed multi-million dollar P&Ls. I am a pioneer of the PC and mobile businesses and I have held senior management positions in hardware and software development of Intel’s microprocessor product line from 8086 to Pentium processors. My experience includes senior roles in marketing, engineering and business management. I was recognized as “Person of the Year” by PC Magazine for my contribution to 80386 program. I have an MS degree in Electrical engineering from the New Jersey Institute of Technology.
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